Finance

Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated. It also deals with how money is spent and budgeted.
Finance works most basically through individuals and business organizations depositing money in a bank. The bank then lends the money out to other individuals or corporations for consumption or investment, and charges interest on the loans.
Loans have become increasingly packaged for resale, meaning that an investor buys the loan (debt) from a bank or directly from a corporation. Bonds are debt sold directly to investors from corporations, while that investor can then hold the debt and collect the interest or sell the debt on a secondary market. Banks are the main facilitators of funding through the provision of credit, although private equity, mutual funds, hedge funds, and other organizations have become important as they invest in various forms of debt. Financial assets, known as investments, are financially managed with careful attention to financial risk management to control financial risk. Financial instruments allow many forms of securitized assets to be traded on securities exchanges such as stock exchanges, including debt such as bonds as well as equity in publicly-traded corporations.^{[dubious – discuss]}
Central banks act as lenders of last resort and control the money supply, which affects the interest rates charged. As money supply increases, interest rates decrease.

http://en.wikipedia.org/wiki/Finance

Bank War

The Bank War is the name given to the controversy over the Second Bank of the United States and the attempts to destroy it by then-president Andrew Jackson. At that time, it was the only nationwide bank and, along with its president Nicholas Biddle, exerted tremendous influence over the nation's financial system. Jackson viewed the Second Bank of the United States as a monopoly since it was a private institution managed by a board of directors, and in 1832 he vetoed the renewal of its charter.

http://en.wikipedia.org/wiki/Bank_War

Core Banking Solutions

Core Banking solutions are banking applications on a platform enabling a phased, strategic approach that lets people improve operations, reduce costs, and prepare for growth. Implementing a modular, component-based enterprise solution ensures strong integration with your existing technologies. An overall service-oriented-architecture (SOA) helps banks reduce the risk that can result from multiple data entries and out-of-date information, increase management approval, and avoid the potential disruption to business caused by replacing entire systems.
Core Banking Solutions is new jargon frequently used in banking circles. The advancement in technology, especially internet and information technology has led to new ways of doing business in banking.

In a shift away from the traditional IT banking system, SAP’s new banking solution combines front and back end functionality, and places more emphasis on customers.

 Traditionally, banking systems focused on the separation of the two main components, which for SAP were Finance and Risk- the back end accounting component, and Core Banking- the front office.

These technologies have cut down time, working simultaneously on different issues and increasing efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions. Here computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, balance of payments and withdrawal are done. This software is installed at different branches of bank and then interconnected by means of communication lines like telephones, satellite, internet etc. It allows the user (customers) to operate accounts from any branch if it has installed core banking solutions. This new platform has changed the way banks are working.

Make Sure Your Bank Deposits Are Safe EDIE

StatePoint

The federal government recently has taken extraordinary steps to stabilise and protect the financial markets and the broader economy; there are also steps you can take to make sure your money is insured and protected.   The Federal Deposit Insurance Corporation (FDIC) is promote Americans to visit myFDICinsurance.gov, a Web site that helps individuals learn about the benefits and details of deposit insurance. There you can use "EDIE the Estimator," an online tool that provides customise information about your insured accounts.
In just a few steps, EDIE can help you ascertain whether all the money you have in bank deposit accounts is 100 percent FDIC-insured. If your money is fully insured, you cannot lose a penny  no matter what because your deposits are backed by the full faith and credit of the U.S government.
"For 75 years, no one has ever lost a penny of insured deposits," said FDIC Chairman Sheila Bair, "but as with any type of insurance, depositors are responsible for knowing how FDIC coverage works in order to ensure their money is protected." 
Recent changes in FDIC insurance limits provide temporary new protection above previous $100,000 levels. Through the end of 2009, basic deposit insurance coverage is up to $250,000 per depositor, with separate coverage provided for deposits held in different account ownership categories.
Depositors may qualify for expanded FDIC insurance coverage if they have deposits in different account ownership categories, but if your total deposits at one bank exceed the basic insurance amount, it's extremely important to structure your accounts properly. A husband and wife each potentially could have a combination of individual accounts, Individual Retirement Accounts and joint accounts at one FDIC-insured bank and be fully insured for up to $1.5 million. 
Consumers also may benefit from special, temporary coverage for non-interest bearing checking accounts. Checking accounts at participating institutions that pay no more than 50 basis points currently are fully insured by the FDIC, no matter how much money is in them, until December 31, 2009. While this expanded coverage is intended primarily for businesses, consumers may also deposit funds in eligible checking accounts in participating banks. To learn whether your bank is participating, ask your banker or check online to see if your bank has opted out of this program at www.fdic.gov/tlgp (click "TLGP Opt Out Lists").
The FDIC offers information and tips to help depositors make sure their money is safe:

* Find out whether your bank is insured by using the FDIC's Bank Find at www.FDIC.gov/bankfind or by calling toll-free 1-877-ASK-FDIC.
* When you open a deposit account at an FDIC-insured bank, your account has automatic deposit insurance coverage with no additional action on your part.
* Separate FDIC insurance coverage is provided for deposits you have at different FDIC-insured banks.
* Confirm whether your deposits are within insurance limits by using EDIE the Estimator at myFDICinsurance.gov or by calling 1-877-ASK-FDIC.
* You will receive motivate access to your insured deposits in the event your bank fails.
* Insured banks are required to tell you when a financial product it offers is not spread by FDIC insurance.
"Despite the credit crisis and challenges facing banks, the bulk of the U.S. banking industry is healthy and remains well capitalise," said Bair. "The FDIC stands ready to meet our sacred commitment to depositors to protect their money."

Why Your Bank Is Broke

Paul Havard talks on his cell phone inside a Citibank branch in New York on Jan. 16, 2009

JB Reed / Bloomberg News / Landov

Even without doing the math, you probably get that the government's financial-rescue effort is failing. The signs are hard to miss. Your friend in finance got pink-slipped. A house sale down the street fell through because the buyer couldn't get a mortgage. A local bank is closing a nearby branch or maybe shutting down altogether.
But do the math, and you can begin to understand how really botched this bailout has been. Since October, the government has deposited $165 billion into the accounts of the nation's eight largest banks. Yet those same financial firms are now worth $418 billion less than they were four months ago, and the Congressional Budget Office estimates that the government's preferred shares are worth at least $20 billion less. In Wall Street terms, that's throwing good money after bad. All told, the government's annualized rate of return on its investment in the nation's largest banks is -1,096%. That's well beyond Bernie Madoff territory; he topped out at a mere -100%. (See pictures of the demise of Bernie Madoff.)
So how could $438 billion — $418 billion of their money and $20 billion of ours — go poof, just like that? Here's the easiest explanation: our banking system has sprung a leak.
Financial firms are built on capital. They take in a dollar, borrow against it and then lend out $3, $4 or $9. Or $30. In the past few years, executives have been using thinner and thinner capital — acquisitions and questionable off-balance-sheet arrangements — to build their money pails. In good times, the more of those cheap sources of capital you use, the more profitable your bank will be.
For the past few decades, banks have been piling up risk, making more and more loans based on less and less capital. Years of economic growth, shallow recessions and record-low default rates lulled bankers into thinking that the future would resemble the immediate past, at least as far as risk went. Turns out it didn't. All it was going to take was a worse-than-average recession — and it looks as though we've got one — and many banks, including a number of the biggest ones, were bound to fail. The shockingly poor lending standards — housekeepers being approved for million-dollar mortgages — have only hastened their demise. "This crisis needs to be understood as something that has developed over the past decade," says Joseph Mason, a finance professor at Louisiana State University's E.J. Ourso College of Business. "This isn't just one black swan. It's a bunch of black swans that have hung out for a while and created a giant problem." (Read George W. Bush's top 10 economic mistakes.)
There's little hope that the type of shares the government is buying in banks as part of the Troubled Asset Relief Program (TARP) will plug the hole in the banking system's bucket. Paul Miller, an analyst at FBR Capital Markets who has written a number of reports on the capital issues of banks, says the only way to solve the problem is for the government to stop buying preferred shares and start taking direct ownership stakes. Of course, the issue with that approach is that the problem at the banks is so large, Uncle Sam may end up owning a good portion of the banking sector. Few seem to want nationalization. Unfortunately, that could be the only way out.

Standard Chartered overhauls board

Standard Chartered, the international bank, overhauled its board today and promised to separate its risk and audit committees next year in an attempt to "improve corporate governance", as demanded by the Walker report on banking, published last month.
The bank, one of those most severely exposed to the Dubai financial crisis, has appointed three new non-executive directors, Dr Han Seung-Soo, a former prime minister of South Korea, Simon Lowth, chief financial officer of AstraZeneca, the pharmaceutical company, and Richard Delbridge, a dyed-in-the-wool banker who previously held roles with HSBC, Natwest, and Midland Bank.
Standard Chartered signalled the start of a fresh approach to risk as Gareth Bullock, the group executive director responsible for risk, decided to retire after a 13-year career in the bank.
Richard Meddings, group finance director, takes over responsibility for risk at an executive level.
The bank said that its chief risk officer, Richard Goulding, would report to both Mr Meddings and the board's risk committee.
John Peace, chairman of Standard Chartered, said "Strong corporate governance is essential for delivering sustainable shareholder value ... I am pleased to say that these changes are in line with the Walker Report recommendations."
The bank confirmed the appointment of Rudy Markham as senior independent director and Jaspal Bindra, Standard Chartered's Asian chief executive, as the group executive director, keeping his responsibilities for the Asian market.
Mr Peace said: "We are adding significant financial and banking experience to the board, as well as increasing its diversity to include members with special insight from our key Asian markets."
Standard Chartered also said that it would "significantly enhance" its sustainability and responsibility committee to review risks to the bank's reputation and brand, culture and values and "ethical and social legitimacy" and whether it treated its customers fairly.

Bank of America’s TARP Move Helps Shed Stigma

Less than a year after grasping two multibillion-dollar bailouts from Washington, a resurgent Bank of America announced on Wednesday that it would repay all of its federal aid, underscoring the banking industry’s swift recovery from the gravest financial crisis since the Depression.
Despite continuing problems with its loans to struggling homeowners and consumers, Bank of America plans to return the $45 billion in aid that it received at the height of the financial panic — a step that, only months ago, would have been almost unimaginable, Louis Story writes in The New York Times.
But like many other big banks, Bank of America is once again making money, in large part through Wall Street businesses like trading stocks and bonds, rather than by making loans. Its recovery, while many ordinary Americans are still struggling, is an important milestone in the government’s yearlong effort to stabilize the nation’s financial industry.
The Obama administration has begun talks with lawmakers about using unspent money from the financial bailout program to help offset the costs of spending to create jobs.
For Bank of America and its beleaguered leader, Kenneth D. Lewis, the turnabout is particularly sweet. Mr. Lewis was driven first from his role as chairman and then from his post as chief executive after the bank’s controversial takeover of Merrill Lynch last year. Now, with only weeks remaining in his tenure, he has managed to extricate Bank of America — not long ago regarded as one of the nation’s most troubled big banks — from Washington’s grip.
Wednesday’s announcement followed months of heated negotiations between the bank’s board members, executives and federal regulators. It is a particularly delicate time for Bank of America, which has struggled to find a replacement for Mr. Lewis. By paying back the money that it received under the Troubled Asset Relief Program, or TARP, Bank of America will free itself from exceptional federal oversight of its executives’ pay — a thorny issue in recruiting a new chief executive.
Indeed, Bank of America’s board has been riven by dissent over just who should lead the bank into its post-bailout period. Several potential candidates have said they were not interested in the job, in part because of the bank’s federal bailouts and the strings attached to them.
But by paying back its rescue funds, Bank of America will shed much of the stigma associated with financial companies that received not one but two federal bailouts. Its repayment will leave Citigroup and GMAC standing alone as the only giant banks that have received such extraordinary aid, although other banks big and small have yet to repay single bailouts.
Bank of America will repay part of its relief funds by selling $18.8 billion in stock that is expected to be converted into common stock, a move that will further dilute its existing shares even as it strengthens the bank’s financial footing.
But most of the money will come from money that Bank of America has generated in recent months with its wagers in the financial markets. After its acquisition of Merrill — a takeover that was once panned but now appears to be paying off — Bank of America has taken greater risks to compete with Wall Street giants like Goldman Sachs and JPMorgan Chase.
The bank said it would put $26.2 billion of its cash toward repaying its bailout and would also sell off $4 billion in assets.
Mr. Lewis was criticized for paying too much for Merrill Lynch, whose gaping losses prompted Bank of America to seek a second lifeline from Washington. The events surrounding the takeover, and the government’s role in it, remain highly controversial. Some shareholders contend that Bank of America failed to disclose adequately the risks associated with the deal, which remains under state and federal scrutiny.
A Treasury Department spokesman said the bank’s repayment represented a major step in removing the government from the banking sector.
“As banks replace Treasury investments with private capital, confidence in the financial system increases, taxpayers are made whole, and government’s unprecedented involvement in the private sector lessens,” said Andrew Williams, a spokesman for the Treasury.
The months-long struggle between the bank and regulators focused on the amount of capital that Bank of America would have to raise to repay the bailout funds. Regulators are pushing major banks to increase their common equity, and the decision about Bank of America’s financial makeup raises questions about whether regulators will demand increases at other banks like Wells Fargo.
Now Bank of America’s board will focus on appointing Mr. Lewis’s successor, a process that began in October when he surprised even close associates by saying he would retire early. The board plans to meet in Charlotte early next week and hopes to interview a few of the final candidates.
Once the bailout money is repaid, the bank will no longer have to consult with the Treasury’s special master of compensation about what it awards its new chief executive, or any other employee. That may open doors for outside candidates for the job who were wary of accepting a job under the government’s thumb.
Bank of America executives have insisted for months that the bank’s underlying businesses were far stronger than those of some other banks and that the Merrill merger would pay off quickly. Indeed, Merrill’s businesses have improved this year as Wall Street’s traditional business of trading and deal making picked up. At the same time, Bank of America’s core consumer lending units suffered greater losses as the economy weakened.
The bank’s negotiations with the government were led by Greg Curl, who took over as its chief risk officer in June. Mr. Curl negotiated the bank’s merger with Merrill last year, and he has been considered a potential successor to Mr. Lewis.

Traditional banking activities

Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to

Bank of Indiana

The state Bank of Indiana was a government chartered banking institution established in 1833 in response to the state's shortage of capital caused by the closure of the Second Bank of the United States by the administration of President Andrew Jackson.

The bank operated for twenty six years and allowed the state to finance its internal improvements, stabilized the state's currency problems, and encouraged greater private economic growth. The bank closed in 1859. The profits were then split between the shareholders, allowing depositors to exchange their bank notes for federal notes, and the bank's buildings and infrastructure were sold and reincorporated as the privately owned Second Bank of Indiana

Case study 2 – Sudden increase in turnover

Lets examine the following reported turnover of my client :

F/Y 2008 – RM 13 mil.
F/Y 2007 – RM 10 mil.
F/Y 2006 – RM 9 mil.

From the surface of the above figures, it shouldn’t be too much of problem if this client wants to apply for additional facility based on the F/Y 2008 increased turnover.

 

However, after examining the last 12 months bank statements, I noticed that the average monthly deposit is only RM800k+, meaning the turnover for F/Y 2009 is anticipated to come down to its previous years’ average of RM10 mil. On further questioning on the F/Y 2008 result, the client admitted that there was 2 ad-hoc transactions during the financial year which had pushed up the turnover and such transactions are not foreseen to be recurring in future, meaning these were just one-time transactions.http://www.springerlink.com/content/dgty5hl041cjhc12/ In this scenario, bank will only evaluate the working capital requirement of the company base on the projected turnover of F/Y 2009 and not F/Y 2008.

If the bank offer me business loan, should I take it ?

Sometimes bank will approach SME business and offer a small loan for their business when they do not need this money, the business owner will start asking whether they should take it. Here’s are my advice.
Take it :

1. 
   
   

   If this loan can helps you to generate additional business. Make sure the profit is sufficient to cover the interest and other associated costs (legal fee, and stamp duty, CGC guarantee fee).

   
   
   
2. 
   
   

   If the interest rate of this loan is lower than any of your existing facility so that you can have some savings from using less of your existing facility.

   
   
   
3. 
   
   

   If you foresee that you may need the money in near future to finance your increasing sales or anticipated new contracts.

   
   

   Do not take it :
   

1. 
   
   

   If you do not know what to do with the money for time being and do not foresee any new business or contracts coming. Normally there is a fixed cost associated with this loan, eg. legal fee and stamp duty, and CGC guarantee fee. I do have clients who took up bank facility but did not in any way increase its turnover and the these costs eat into his profit.

   
   
   
2. 
   
   

   If you intend to use the money for a new business which is not related to your existing business or do not complement your existing business.

   
   
   
3. 
   
   

   If you intend to keep the money for personal use.

   http://www.businessweek.com/the_thread/hotproperty/archives/2007/03/the_new_exit_st.html
   
   

Some business owners regretted for not accepting the loan when their subsequent application was rejected by banks especially when the business environment gets tougher. In fact, they should be happy that the loan was not taken up since it is more difficult to make money now to repay the loan.

 

Change of Government policy

On 29 Oct, major local newspapers have front paged the Government announcement on the overhaul of NAP (National Automotive Policy). Among the key measures to be implemented include prohibition of import of used auto parts from June 2011.

What is the implication of this message from the perspective of bank facility?

Everybody knows importers of cars used parts, especially from Japan, have been making good profit from the trade for years. If you are one of these importers and have been relying on bank facilities to facilitate your imports, don’t you think your bankers is already trying to structure an exit plan so that your loan can be fully settled by June 2011 which is less than 2 years from now.

If you are now in the business, at least there are 2 things you need to look into :

1. 
   

   Voluntarily restructure your bank facility now by converting partial trade line into term loan so that your outstanding amount is paid down by then. Do not wait until the banks come to you and recall your facilities without yourself preparing for it.

   
   
2. 
   

   Tighten your credit policy if you are giving credit term to your dealers. This will helps you generate sufficient cashflow to meet the above term loan repayment and to prevent huge bad debt when other banks recall the bank facility of your dealers later.

   
   

This message is also useful for other trades which are sensitive to change of Government’s policies from time to time.

Case study 3 – Resubmission of application

Some banks has a policy that says an application which has been rejected within certain time frame is not allowed to re-submit its new application again.

My client recently submitted its fresh application to a bank which has rejected his application about 6 months ago for some non-compliance issues. Thinking that the company had rectified all those non-compliance issues and re-submit its application, the borrower was told that the bank is unable to accept its fresh application for its previous unsuccessful record.

My advice, do not submit your full documents to a bank for official application. Discuss with the bank officer if you have any special requests which may trigger any of the non-compliance issues. For eg. one of the director not able to stand as a guarantor or you want a very high proportion of overdraft facility. Remember, these requests are not to banks’ favour.

If you put in an official application with these special requests, very likely your application will be rejected and leave a record in the bank system that your application has been “REJECTED”.

SME FINANCING IN MALAYSIA

SME loan is a much talk about topic among Malaysian SME/SMI enterpreneurs. While some SME may already knew very well the various schemes and structures of SME bank loan available, most are still lack of in-depth knowledge on this topic.

In this blog, we will discuss on all issues relating to  SME/SMI financing from many perspectives including many difficulties faced by enterpreneurs in obtaining bank facility, how to prepare for the application, general terms used in the banking industry and other related topics arises from time to time.

YOUR GUIDE TO SME FINANCING

SME FINANCING IN MALAYSIA

Case study 3 – Resubmission of application

Change of Government policy

If the bank offer me business loan, should I take it ?

Case study 2 – Sudden increase in turnover

Provider of fully integrated banking software solutions

Probanx Information Systems specializes in development of software for the financial institutions, offering multi-currency and multi-lingual banking systems with a large variety of modules, based on the latest technologies.http://www.probanx.com We install and support turn-key international banking software solutions for retail banks, commercial banks, Internet banks and micro finance banks.

Corporate Overview

Probanx Information System Ltd (Probanx) is a German managed banking software company developing comprehensive IT solutions exclusively to the financial institutions around the globe.

Probanx products portfolio meets requirements of  Retail Banking, Corporate Banking, Private Banking, Offshore Banking and Internet Banking and Micro Finance Banking.

Probanx is a Microsoft Certified Partner since 2002. We have a number of the business partners in Europe, Middle East and Africa and a global support centre located in the heart of Nicosia, Cyprus.

Probanx specializes in working with small to mid size international financial institutions providing them fully integrated software solutions, which are tailored to the requirements of those clients, at a very reasonable cost.

Probanx customers are located on four continents: Europe, Africa, Asia and Australia.

Probanx addresses its products and services to the clients worldwide, thanks to the network of partners. Our partners add value to our products and expertise by understanding unique local banking market requirements and providing local support.http://www.probanx.com

We are proud of our personal commitment to all our clients to provide superior service and support at all times. We are also committed to continually improve our software, implementing international banking practices and stay ahead of the competition using latest information technology.

HQ office of Probanx  in the heart of Nicosia.

hard money loan

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution. Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as cost to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.  http://en.wikipedia.org/wiki/Hard_money_loan
Many hard money mortgages are made by private investors, generally in their local areas. Usually the credit score of the borrower is not important, as the loan is secured by the value of the collateral property. Typically, the maximum loan to value ratio is 65–70%. That is, if the property is worth $100,000, the lender would advance $65,000–70,000 against it. This low LTV provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.

M-Secure Banking

In today’s networked world of the internet, the browser and e-mail are the ubiquitous software tools used for information exchange. When applied to the world of electronic banking, bill payment, and ecommerce, the internet is the haven for hackers to steal and commandeer the identity of others and perpetrate fraud. Literally, billions of dollars are lost each year to these nefarious schemes, not to mention the impugned reputations of the masqueraded individuals and the legitimate companies with which they do business.
Online Banking Solutions (OBS) has developed a suite of products designed to minimize internet fraud and risk.
M-Secure Browser: a hardened internet browser with integrated two-factor and mutual authentication and the new M-Secure Virtual Keyboard.
Single Sign-On Service (SSO) for easy-to-use and secure user access to multiple bank web appplciations.
Features include:

• Validation of the M-Secure Browser software during startup
• Strong authentication to prove identity of user
• M-Secure Keyboard to prevent harvesting of private information via keyloggers
• One-time, time-perishable passcode generation/utilization
• Restricted and controlled destination/URL list per user
• Strong authentication of destination web sites (prevents pharming)
• Single Sign-On (SSO) and user credential management for identified web sites

Download a viewable schematic here.